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Monitoring and Evaluation of Production Partner Factories

Last Updated: 2019.05.17
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Fast Retailing believes that respect for human rights and improving labor environments are among our most important responsibilities. We created our Code of Conduct for Production Partners to serve as a guide in monitoring labor conditions.

Workplace Monitoring

Partner Factory Monitoring Program

Fast Retailing evaluates all partner sewing factories and key fabric mills for human rights abuses, poor labor conditions, environmental preservation practices, and other issues as per our Code of Conduct for Production Partners. We disclose the results of our audits to the public. We contract with third-party entities to perform regular audits which are unannounced. When improvements are required, at times we send Fast Retailing personnel to visit the site in person, helping our partners to implement measures for improvement. We perform due diligence of potential new partners to identify and improve any labor environment issues as early in the process as possible.

In 2015, we began performing audits under the Better Work system, a program managed jointly by the International Labor Organization and the International Finance Corporation. Adopted widely in the apparel industry, Better Work monitoring eliminates duplications in factory audits, letting companies focus mainly on improving labor conditions.

In 2015, Fast Retailing joined Fair Labor Association (FLA) which has provided support in adopting FLA labor environment standards throughout the entire supply chain, evaluated our monitoring activities related to labor conditions, and provided guidance for improvement and encouraged us to dialogue and engage with stakeholders, including member brands, factories, and citizen groups to tackle issues related to labor conditions.

In February 2019, the FLA accredited the Fast Retailing labor factory monitoring program. Participating companies with accredited monitoring programs have demonstrated that they have the systems and procedures in place needed to successfully uphold fair labor standards throughout their supply chains.

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Workplace Monitoring System

Factory monitoring process

Fast Retailing conducts regular workplace audits, assigning partner factories a letter grade from A to E. We assign a grade of A to partner factories that comply with our Code of Conduct for Production Partners and commit zero notable violations. A partner factory with a B grade is one that has committed relatively low-risk violations. When we believe a partner factory may have committed a violation of human rights or local occupational health and safety laws (e.g. masks, gloves, or other protective equipment not provided to workers as needed), we assign that partner a grade of C. Partner factories assigned a grade of D are those that have committed major violations of human rights, occupational health and safety, or wage and benefit matters (e.g. locked emergency exits, errors in wage calculations). We conduct follow-up audits for partners that have committed C or D grade violations. If violations are not remedied to our satisfaction, we may reduce our business volume with the partner, or even terminate business relations altogether. We assign a grade of E to those partner factories that are found committing major violations, including child labor, forced labor, or other human rights violations. Significant violations of occupational health and safety also merit a grade of E. When C or D grade violations are not resolved in follow-up audits or E grade violations are found in an annual audit, we escalate these matters to the Fast Retailing Business Ethics Committee, which discusses the management and employment situation of the partner in question. The committee then determines whether to terminate or modify our business relationship and makes recommendation to the Production department.

To identify risks in the supply chain, we evaluate production partners and send Fast Retailing personnel to visit factories in person, clarifying the degree of risk present. We define factories as high-risk when we find issues related to lack of transparency (falsified reports, etc.), disputes between labor and management, human rights violations, or other concerns. For such factories, we will engage a third-party entity to conduct an audit and send Fast Retailing personnel more frequently to assess our understanding of the causes of these issues and address them.

Subcontracted Factories Audits

Fast Retailing strictly prohibits production at unauthorized subcontractors in our Code of Conduct for Production Partners. Our core sewing factories are required to audit subcontractors to which they have outsourced a part of their production processes and receive approval from Fast Retailing. Subcontractors undergo the same audit as partner factories every year. If a major violation against the Code of Conduct for Production Partners is found in the audit, the subcontractor must remediate the issue within three months and pass the follow-up audit.
Fast Retailing also checks if a partner factory uses only authorized subcontractors as part of the annual audit process.

Workplace Monitoring Results

Results of Workplace Monitoring (Evaluations of Partner Factories)

In fiscal 2018, we made our auditing standards stricter by placing greater emphasis on the effectiveness of grievance systems in our partner factories, which resulted in the increased proportion C evaluations. Also, in fiscal 2018, we focused on more accurate recording of working hours together with suppliers. As a result of this initiative, we found an increase in improper payment of overtime, which led to the increased percentage of D evaluations. On the other hand, since the above efforts led to early problem-solving, the proportion of E evaluations drastically decreased. During fiscal 2018, we took steps to reduce our volume of business with any partners assessed a grade of D (major violations) and did not show any improvement after for whom follow-up audits. Our Business Ethics Committee discussed the management and employment situation of several partner factories assigned a grade of E due to serious violations. Based on these discussions, Fast Retailing revised or terminated business relationships with these partners.

Workplace monitoring results

AZero notable violations
BRelatively low-risk violations
CPotential violations of human rights or local occupational health and safety laws (e.g. masks, gloves, or other protective equipment not provided to workers as needed)
DMajor violations of human rights, occupational health and safety, or wage and benefit matters (e.g. locked emergency exits, errors in wage calculations)
EMajor violations, including child labor, forced labor, or other human rights violations; significant violations of occupational health and safety

Frequent Violations in Fiscal 2018

The most frequent violations of the Code of Conduct for Production Partners found in audits during fiscal 2018 are categorized in the areas of health and safety and working hours. Fast Retailing has strengthened efforts to resolve violations and take preventive measures in those areas.

Breakdown of Violations Found During Fiscal 2018

Breakdown of violations found during fiscal 2018

Health and Safety
In order to secure health and safety in partner factories, Fast Retailing conducts regular training for suppliers on local fire safety standards, new local law requirements, and good practices of health and safety management etc. When the Sustainability department visits a factory, we always check onsite if proper fire protection is in place and require immediate improvement when an issue is found. Fast Retailing has signed the Accord on Fire and Building Safety in Bangladesh, aimed at protecting workers in garment factories from building collapse and fire.

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Working Hours
Fast Retailing addresses improvement of transparency in the supply chain and strictly prohibits partner factories from submitting falsified documents. We not only monitor working hours during audits and follow-up audits, but also have strengthened internal, cross-department collaboration among the Sustainability and Production departments in order to address the working hours issue at our core sewing factories. The Production department follows up with our partner factories to identify the root causes and creates an improvement plan. The Production department then collects the actual weekly working hours of all employees in those partner factories every month so as to monitor the situation.
In order to reduce working hours, we noticed that our partner factories took various actions to increase productivity: investing in factory automation, optimizing production planning, training workers so they can be more skilled and adapting the compensation scheme to worker efficiency. The Production department also requests partner factories to forecast excessive working hours and inform us so that our production planning can be adjusted when possible. The Sustainability department monitors the factories' implementation of their improvement plans and at times will verify working hours' data on site. Regular internal meetings are held to follow-up on the progress of our core partner factories. Even though we have noticed improvement at the majority of our core sewing factories, we will continue to monitor and support our core sewing factories.

Due Diligence for New Production Partners

Monitoring Potential New Production Partners Prior to Commencing Business

We conduct a due diligence at any potential new partner prior to commencing business with them. This process ensures potential partners comply with our Code of Conduct for Production Partners. We only do business with those partners confirmed to meet standards for commencing new business relationships. Partner factories that receive a grade of D during the audit are asked to make corrections within three months and we start our business only once corrections are confirmed in a follow-up audit. Partner factories who had serious violations are not eligible to do business with Fast Retailing. During fiscal 2017, we initiated business relationships with 87.7 percent of potential partners.

Approval Process for New Factories

Approval Process for New Factories

Factory and Fast Retailing Hotlines

Hotlines for Factory Employees

Fast Retailing asks partner factories to establish their own mechanism to address employees' grievances as part of proper business management. In addition, we monitor partner labor conditions to assess whether their business management meets Fair Labor Association standards.

We established the Fast Retailing Hotline that provides a channel for employees and organizations representing a group of individuals at key sewing factories and fabric manufacturers to contact us directly. These programs exist in Shanghai, Ho Chi Minh City, Dhaka, Jakarta, Tokyo, and other locations. Upon our request, Fast Retailing partner factories shall display Fast Retailing Hotline posters that are provided by us, in a location visible to workers inside their factories. We request our partner factories to communicate to workers of each factory so that they are aware of the Fast Retailing Hotline to voice their concerns, without fear of retaliation and prejudicial treatment should they raise a grievance. Workers are provided the contact details to access the Fast Retailing Hotline in their local languages and contact cards are given to workers who are interviewed during annual audits conducted by third party auditors.

Once we receive a worker's concern, Fast Retailing is aiming to investigate the grievance to identify the underlying issue and take appropriate remedial action. Fast Retailing will ensure that grievances are dealt with confidentiality. The Factory Hotline is handled by Fast Retailing employees and all employees are required to strictly follow the Fast Retailing Group Code of Conduct which covers the handling of confidential information and data handling. Grievances are also reported to the Human Rights Committee.

When we identify human rights violation stemming from the investigation, our Sustainability and Production departments ask partner factories to make improvements and corrections in line with International Labor Organization Fundamental Conventions, local labor laws and our Code of Conduct for Production Partners.

We protect the privacy of people who raise grievances and strictly prohibit retaliation and disadvantageous treatment against them. We commit to engage with any impacted people and reply to them in a prompt and consistent manner. We closely monitor that our hotline functions efficiently. For example, responsible persons in the Sustainability department track that Fast Retailing contacts all workers promptly once they raise a concern and that grievances are closed within an acceptable time frame for the workers.

Factory Hotline Operational Process

Factory Hotline Operational Process

Grievances Related to Human Rights Violations

Among grievances raised to the Fast Retailing Hotline in fiscal 2018, 19 cases were assessed as violations of ILO core conventions, local labor laws or the Code of Conduct for Production Partners. Out of 19 cases, 13 cases were related to human rights violations such as wages and working hours' issues, harassment etc. Nine of 13 cases were closed during fiscal 2018.

Fast Retailing has also analyzed the received grievances in order to put in place preventive measures. As a result of grievances and country risk analysis, we found that remedies and preventive measures on harassment issues were required in partner factories in Bangladesh. Subsequently in 2019, we launched a pilot project to put in place a complaints committee in some of our partner factories partnering with two local NGOs in Bangladesh. The committee will establish anti-harassment policies and guidelines, investigate issues and conciliate harassment cases. Management, workers and committee members will be trained by the NGOs. We aim to establish complaint committees to prevent and remedy harassment in all our partner factories in Bangladesh.

Promoting Initiatives That Support Various Working Styles

  • Case 1
    We received a report from a factory employee that a factory organization change may result in lower wages. Fast Retailing worked with our partner factory, who clarified to their employees that the redeployment was in conformity with law. The factory management also launched training programs for employees to address any low performance. They respected the intention of employees who wished to stay in their current positions. The factory has also facilitated the process for workers to apply for new positions.
  • Case 2
    Fast Retailing received a report from a factory worker that other workers continued working after clocking out to receive greater productivity bonuses. Fast Retailing worked with our partner, who addressed the matter. The partner monitored and compared working hours to off-the-clock work and took measures to prevent similar issues from arising in the future such as cutting off electricity to production lines and conducting remedial training for line workers.
  • Case 3
    In Myanmar, workers went on strike in one of Fast Retailing's partner factories in fall 2017. We were contacted by the trade union after seven trade unions members were dismissed. Fast Retailing worked with factory management and the trade union to re-establish a dialogue and together built resolutions such as the reinstatement of dismissed workers and payment of allowances. Since then, other workers' concerns were negotiated successfully especially around wages and benefits. The factory management is now enrolled in a social dialogue program.

Partner Factory Training

We conduct regular training to ensure partner factories understand the Fast Retailing Code of Conduct for Production Partners and the latest in labor standards, etc. For example, we offer programs that cover revisions to the code of conduct (e.g. requiring partners to establish hotlines in fiscal 2018), fire prevention safety standards, correct pay calculations for overtime work, and other matters. During fiscal 2018, we conducted training for a total of 636 factories across nine different countries.

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